INVESCO Leveraged High Yield Fund Limited
Unaudited Preliminary Announcement of Final Results
For the Year Ended 30 September 2003
Performance Statistics
At At
30September 30September %
2003 2002 Change
Capital
Total assets less current liabilities 63,200 53,532 +18.1
Shareholders' funds (�'000) 17,150 7,482 +129.2
Net asset value per ordinary share 21.5p 9.4p +129.2
Mid-market price per ordinary share 17.0p 12.5p +36.0
Discount (Premium) per ordinary share 20.9% (33.1%)
Potential Gearing 369 715
Actual Gearing 345 668
Total
Merrill Lynch Global High Yield
European Issuers Index - Total Return 110.3 78.6 +40.3
Total return on portfolio +13.4
Revenue
Gross income (�'000) 6,216 6,080 +2.2%
Net revenue available for ordinary shares (� 3,927 2,707 +44.4%
'000)
Dividend per ordinary share 2.00p 4.75p -57.9%
Total Expense Ratio 4.6% 7.4%
Return per Ordinary Share
Revenue return 4.93p 4.85p
Capital return 9.20p (20.32)p
Total return 14.13p (15.47)p
Chairman's Statement
In my last statement I outlined the substantial improvement in the high yield
markets that we had begun to see from the very low levels of the last quarter
of 2002. I am glad to be able to confirm in this notice that this improvement
has continued through the rest of our financial year and appears to be
maintaining momentum at the time of writing.
It now appears that the strength in high yield markets from early this year was
a precursor for improved sentiment across capital markets. Although it is
always easy to make profound comment on market behaviour post the fact - it
always seemed logical to us that high yield markets would have to recover
first, ie. before equity markets could begin any sort of sustainable recovery.
Balance sheets needed to be repaired and debt problems addressed before
shareholders could see higher valuations. In some cases this lesson of the
priority of claims within the capital structure has been a painful one. Many
companies have been forced into bankruptcy over the last three years under the
weight of their debts. Debt for equity swaps have resulted in the transfer of
ownership from shareholder to creditor in significant numbers. We have
experienced that, to the detriment of the portfolio, the extent of this
correction has been vast. The excess borrowing of the late 90s has taken a long
time to unwind.
We can draw some comfort from the fact that this process is drawing to a close.
The default rate has fallen dramatically and is forecast to fall further over
the next year. We have experienced very little default this year and none of
the corporate governance surprises that coloured the previous two years. As the
credit landscape has improved so risk appetite has returned to markets. It has
not been uncommon for us to have individual bond prices rally by 50-100%. The
capital value of the fund has risen by 18.1% this year. The net asset value
(`NAV') of our shares has accordingly risen 129.2%. Leverage has finally worked
in our favour.
Last year we highlighted the fact that we believed investment returns from our
asset class would be predominantly due to capital improvement. The Board took a
decision last year that it wished to rebuild the capital of the Company and set
the level of the dividend at 2p. Whilst we have earned more than 2p over the
course of the year, the Board believe that 2p is a base level for the dividend
going forward. To a large extent we now believe that this process has run its
course. We now expect returns to be significantly correlated with income
generation. We do not expect the pace of capital appreciation to be sustained -
rather we believe that the NAV is likely to consolidate around recent levels.
At today's NAV we have adequate coverage on our leverage ratio and we continue
to be compliant with our other bank covenants. We continue to believe that our
present dividend policy is sustainable. Although badly damaged by terrible
markets over the last few years our Company has survived and the returns this
year have helped in some way to strengthen our balance sheet. Although the
potential for market volatility remains, we are of the view that the portfolio
has improved in quality and diversification and that we are unlikely to
experience markets like 2001/02 again in the near term.
Management Contract
After three years of extremely difficult markets, the Managers, Paul Read and
Paul Causer of INVESCO Asset Management Limited, have performed well and the
Board has confidence in their ability to continue to do so over the coming
year.
Future Prospects
The Board is currently evaluating the future of the Company given its proposed
life in 2006 and will advise shareholders of its conclusions in due course.
Annual General Meeting
The Annual General Meeting has been called for 15 January 2004. Your support
for the resolutions detailed in the Notice is requested.
George Baird
Chairman
9 December 2003
Statement of Total Return (incorporating the Revenue Account)
for the year ended 30 September
2003 2002
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Gains/(Losses) on - 10,665 10,665 - (11,117) (11,117)
investments
Exchange differences - (487) (487) - 48 48
Gains/(Losses) on currency
hedges
- unrealised - 420 420 - (222) (222)
- realised - (1,134) (1,134) - 1,010 1,010
Income 6,216 - 6,216 6,080 - 6,080
Investment management fee (192) (192) (384) (262) (90) (352)
Other expenses (160) - (160) (207) - (207)
Net return before finance
costs and taxation 5,864 9,272 15,136 5,611 (10,371) (4,760)
Interest payable and
similar
charges (1,937) (1,937) (3,874) (2,904) (964) (3,868)
Return on ordinary
activities
before taxation 3,927 7,335 11,262 2,707 (11,335) (8,628)
Tax on ordinary activities - - - - - -
Return on ordinary
activities
after taxation for the
financial period 3,927 7,335 11,262 2,707 (11,335) (8,628)
Dividend in respect of
equity
shares (1,594) - (1,594) (2,474) - (2,474)
Transfer to/(from) reserves 2,333 7,335 9,668 233 (11,335) (11,102)
Basic return per ordinary 4.93p 9.20p 14.13p 4.85p (20.32)p (15.47)p
share
The revenue column of this statement is the profit and loss account of the
company.
All revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued in the year.
Reconciliation of Movement in Shareholders' Funds
for the year ended 30 September
2003 2002
�'000 �'000
Revenue return for the year 2,333 233
Capital return for the year 7,335 (11,335)
Net proceeds from issue of shares - 11,001
Net movements in Shareholder's funds 9,668 (101)
Opening Shareholders' funds 7,482 7,583
Closing Shareholders' funds 17,150 7,482
Balance Sheet
at 30 September
2003 2002
�'000 �'000
Fixed assets
Investments 59,194 50,007
Current assets
Debtors 2,604 2,290
Cash at bank 3,774 3,885
6,378 6,175
Creditors: amounts falling due within one year (2,372) (2,650)
Net current assets 4,006 3,525
Total assets less current liabilities 63,200 53,532
Creditors: amounts falling due after more than (46,050) (46,050)
one year
Total net assets 17,150 7,482
Capital and reserves
Called-up share capital 797 797
Share premium account 40,553 40,553
Other reserves
Capital reserve - realised (31,761) (27,354)
Capital reserve - unrealised 4,844 (6,898)
Revenue reserve 2,717 384
Equity Shareholders' funds 17,150 7,482
Net asset value per ordinary share 21.5p 9.4p
Cash Flow Statement
for the year ended 30 September
2003 2002
�'000 �'000
Cash inflow from operating activities 5,682 5,699
Servicing of finance (3,802) (3,823)
Capital expenditure and financial investment 1,224 (10,202)
Equity dividends paid (1,594) (2,477)
Net cash outflow before management of
liquid resources and financing 1,510 (10,803)
Management of liquid resources 720 (1,210)
Financing - 11,001
Movement in cash 2,230 (1,012)
Reconciliation of net cash flow to movement in net
debt
Movement in cash 2,230 (1,012)
Cash (outflow)/inflow from increase in liquid (720) 1,210
resources
Change in net funds resulting from cash flows 1,510 198
Translation differences (1,621) 1,058
Movement in net (debt)/funds in the year (111) 1,256
Net debt at beginning of year (42,165) (43,421)
Net debt at end of year (42,276) (42,165)
Notes to the Preliminary Announcement
1. Income
2003 2002
�'000 �'000
Income from investments
Unfranked investment income - interest 2,062 2,105
Overseas interest 4,040 3,855
Overseas dividends 38 18
6,140 5,978
Other income
Deposit interest 76 98
Other income - 4
76 102
Total income 6,216 6,080
2. Investment management fee
2003 2002
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Investment management fee 192 192 384 262 90 352
192 192 384 262 90 352
(i) INVESCO Asset Management Limited (IAML) acts as Managers to the Company
under a discretionary management agreement dated 8 October 1999. This agreement
is terminable by one year's written notice subject to earlier termination as
provided for therein. The fee is normally calculated at the rate of 0.8% per
annum by reference to the total gross assets at the end of December, March,
June and September in the current accounting period. In the light of market
conditions, the Directors decided it was appropriate to reduce their fees in
the year ended 30 September 2003 and 30 September 2002 by 20%. IAML also agreed
to reduce its management fee for the same years by 20% and was therefore paid
at a rate of 0.64% per annum on the Company's total gross assets. At
30 September 2003 �102,000 (2002: �84,000) was due for payment in respect of
management fees.
3. Other expenses
2003 2002
�'000 �'000
General expenses 105 153
Aggregate Directors fees (see below) 42 42
Auditors' remuneration - for audit services 13 12
160 207
(i) R&H Jersey Fund Services (Jersey) Limited acts as Administrator and
Secretaries to the Company under an agreement dated 8 October 1999. This
agreement is terminable by not less than three months written notice subject to
earlier termination as provided for therein. The fee is calculated at the rate
of �8,000 (2002: �8,000) per annum for Secretarial Services and �16,000 (2002:
�16,000) per annum for Administration Services. These fees are included as
general expenses.
ii. Of the Directors' emoluments disclosed above, �2,000 (2002: �2,000) was
paid to third parties. The Directors' fees authorised by the Articles of
Association are �100,000 per annum.
iii. As shown in note 2, the Directors decided to reduce their fees for the
year ended 30 September 2003 and 30 September 2002 by 20%.
iv.
4. Interest payable and similar charges
2003 2002
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Interest on bank loans and
overdrafts:
Repayable between 2-5
years, not by instalments 1,714 1,714 3,428 2,567 853 3,420
Interest cap payments 187 187 374 283 94 377
Amortisation of arrangement
fee on loans 36 36 72 54 17 71
1,937 1,937 3,874 2,904 964 3,868
5. Tax on net revenue from ordinary activities
The Company is incorporated in Jersey and is not subject to UK corporation tax.
The Company is an exempt company for Jersey income tax purposes and is only
liable to an annual charge of �600.
6. Dividends
2003 2002
pence �'000 pence �'000
Dividends on equity shares
ordinary - first interim paid 1.00 797 1.75 560
ordinary - second interim paid 1.00 797 1.00 320
ordinary - third interim paid - - 1.00 797
ordinary - fourth interim paid - - 1.00 797
2.00 1,594 4.75 2,474
7. Return per ordinary share
The basic revenue return per ordinary share is based on the revenue on ordinary
activities after taxation and on 79,706,600 (2002: 55,787,447) ordinary shares,
being the weighted average number of ordinary shares in issue throughout the
year.
The basic capital return per ordinary share is based on the net capital return
on ordinary activities after taxation and on 79,706,600 (2002: 55,787,447)
ordinary shares, being the weighted average number of ordinary shares in issue
throughout the year.
8. Net asset value per share
The net asset value per ordinary share and the net assets attributable at the
year end were as follows:
Net asset value Net assets
per ordinary attributable
share
2003 2002 2003 2002
pence pence �'000 �'000
Ordinary shares 21.5 9.4 17,130 7,482
Net asset value per ordinary share is based on net assets at the year end and
on 79,706,600 (2002: 79,706,600) ordinary shares, being the number of ordinary
shares in issue at the year end.
9. Notes to the cash flow statement
(a) Reconciliation of revenue to net cash inflow from operating activities
2003 2002
�'000 �'000
Return before finance costs and taxation 5,864 5,611
Decrease in prepayments and accrued income 33 213
Decrease in accruals and deferred income (23) (35)
Management fee charged to capital (192) (90)
Net cash inflow from operating activities 5,682 5,699
(b) Analysis of cash flows for headings netted in the cash flow statement
Servicing of finance
2003 2002
�'000 �'000
Interest paid (3,802) (3,823)
Net cash outflow from servicing of finance (3,802) (3,823)
Net financial investment
2003 2002
�'000 �'000
Purchase of investments (31,039) (40,169)
Sale of investments 32,263 29,967
Net cash inflow/(outflow) for financial investments 1,224 (10,202)
Management of liquid resources
2003 2002
�'000 �'000
Cash placed on/(called from) short-term deposit 720 (1,210)
Net cash inflow/(outflow) from management of liquid 720 (1,210)
resources
Financing
2003 2002
�'000 �'000
Gross proceeds from share issue - 11,450
Expenses of issue - (449)
Net cash inflow from financing - 11,001
(c) Analysis of net debt
30 September Cash Exchange 30
September
2002 flow movement 2003
�'000 �'000 �'000 �'000
Cash at bank 315 1,096 (487) 924
Cash placed on short-term 3,570 (720) - 2,850
deposit
Debt due between 2-5 years (46,050) - - (46,050)
Net debt (42,165) 376 (487) (42,276)
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 30 September 2003 or the year ended 30
September 2002. The financial information for 2002 is derived from the
statutory accounts for 2002. The auditors have reported on the 2002 accounts,
their report was unqualified and did not contain a statement under section 237
(2) or (3) of the Companies Act 1985. The financial information for the year
ended 30 September 2003 is unaudited. The statutory accounts for 2003 will be
finalised on the basis of the financial information presented by the Directors
in this preliminary accountment.
The audited Report and Accounts will be posted to shareholders shortly. Copies
may be obtained during normal business hours from the Company's Registered
Office, Ordnance House, 31 Pier Road, St. Helier, Jersey, JE4 8PW.
The Annual General Meeting will be held at INVESCO International Limited, 40
Esplanade, St. Helier, Jersey, JE4 2PH, Channel Islands on 15 January 2004 at
2.00 pm.
By order of the Board
R&H Fund Services (Jersey) Limited 11 December 2003
END